The recession was short and sharp – and over
It takes two quarters of negative growth to start a recession but only three months’ positive growth to end one. The UK slump is probably already over, making it deep but quick.
The rise in industrial production in April announced in June 2009, the first for 14 months, may partly reflect the end of running down stocks, but retail sales have remained buoyant throughout the slump.
The National Institute for Economic & Social Research reckons gross domestic product rose in both April and May and, if June’s figure is positive too, that should mean growth for the whole second-quarter, marking an official end to the recession.
There are statistical reasons why three positive months might still not produce a positive total, but in the real world, that would mean a recession that began in May 2008 ended 11 months later in March. In that short time the economy shrank by a whopping 5 per cent, but speed and depth suggest a V-shape recession with the potential for a sharp bounce back.
Suddenly the chancellor’s budget forecast of the recession ending in the fourth quarter of the year looks pessimistic rather than optimistic, and with luck, the recovery will be self-fuelling with growth in one sector encouraging green shoots in others. No wonder Alistair Darling insisted on staying at the Treasury to take the credit.
Ending the recession before the general election may not be enough to keep Labour in office but it has changed the political landscape. We have had government intervention in the economy on a scale not seen since the 1970s and thus set a template for future downturns. Unprecedented cuts in interest rates have reduced consumers’ mortgage costs, specific industries have received aid and banks have been nationalised.
But an end to recession does not mean a return to boomtimes. Unemployment will continue rising for many months; inflation will rise again when the mortgage cuts drop out of the equation; public spending cuts are on both parties’ agendas; there is a massive debt burden to repay over many years.
Official notice of the end of the recession could come in late July when the GDP figures are released. If the numbers don’t quite add up for the second quarter then October’s figures should confirm that the all-clear has been sounded.
But even if the economy did slip back into negative growth, the recession clock has to be reset with two more quarters of decline recorded before a new recession is declared. And by that time, the election will be over.
